Aker Solutions ASA

OSE:AKSO

Earnings Call Transcript 2018-Q1

[Synnøve Gjønnes, Analyst]

Good morning. Welcome to Aker Solutions' Presentation of First Quarter Results for 2018. My name is Bunny Nooryani, I head Investor Relations and Communications. With me here today are Luis Araujo, our CEO; and Svein Stoknes, our CFO. They will go through the main developments in the quarter. We will have time for Q&A and for some brief interviews with the media.Before we get started, I'd like to point to the nearest emergency exit, which is through the glass doors on your left hand side. Please also note that we don't have any fire drills planned today. Thank you. Luis?

[Svein Oskar Stoknes, Chief Financial Officer]

Thanks, Bunny. Good morning to you all and thank you for joining us here today. I'm pleased to be here with Svein to go through our results for the first quarter, which was another period of strong execution and solid order intake.Let's start with the main developments. Market conditions remains challenging, but we are seeing increasing positive signs. Break-even costs continue to come down and more projects are being sanctioned. We won nearly NOK 9 billion in new orders in the quarter, almost doubling from a year earlier. And we delivered another period of strong execution, making good progress on major projects globally.To give you a flavor, last month, the third and final module for the Johan Sverdrup riser platform was sailed away from the yard in South Korea. It was installed just this week, a few days ahead of schedule at this giant North Sea field. We also moved forward with other work on the development. Together with Samsung, we finished about 90% of the engineering and construction of the field's processing platform. And we recently completed the civil works at the Mongstad terminal, where the Johan Sverdrup Pipeline will come ashore. And we did these 6 weeks ahead of schedule. Also in Norway, we delivered the template for the subsea production system for the DEA Dvalin gas field.Outside of Norway, we are also making good progress. In Angola, more than 1/3 of the 65 trees and almost half of the production wellhead jumpers are now installed at Total giant Kaombo development. In Brazil, we installed 2 water and gas alternate injection manifolds for Petrobras at the pre-salt fields in the Santos Basin, over 2,200 meters deep. We also delivered 2 more subsea trees for the fields, bringing the total to 34 out of 60 planned trees.We are also making good progress with our newest venture, floating offshore wind. Early this month, we were selected with partners to pursue the development of an offshore wind farm off the coast of California. This is a major step forward in building one of the first commercial-scale floating offshore wind projects in the U.S.A. It's also a big achievement for Aker Solutions since we entered the floating offshore wind market just 4 months ago.The quarter saw a continuation of the good progress we have made in improving operations and reducing costs throughout the company. These included deploying several digital initiatives to boost efficiency as we continuously strive to improve how we work. These efforts help support margins, which improved in the quarter compared with a year earlier. And finally, and importantly, we strengthened both our top and bottom lines in the period.Now for the main numbers. Our first quarter financial figures were: Revenue of NOK 5.5 billion, EBITDA of NOK 425 million, an EBITDA margin of 7.8%. Excluding special items, the margin was 7.1%, and EPS was NOK 0.31. We had an order intake of NOK 8.6 billion and this brings the backlog to about NOK 38 billion, a healthy level.The last quarter was the second in a row that we have boosted our order intake. New orders included, contracts worth between NOK 1.5 billion to NOK 2 billion from Statoil to provide the subsea production systems for the Troll Phase 3 in Askeladd gas production offshore Norway. We also won an order to deliver modules for the FPSO of Johan Castberg development in the Barents Sea. This work is valued at about NOK 450 million and brings the total value of orders we have for Johan Castberg to NOK 4.5 billion. Also in Norway, we secured a major order from Wintershall to provide subsea production systems, umbilicals and services for the Nova field.Outside of Norway, we won contracts valued at about NOK 800 million from Petrobras in Brazil. This involves maintenance and modifications of the FPSO on 3 fields in the Campos Basin. The work will be carried out by C.S.E., the Brazilian [ sales ] company that we acquired in 2016. This ties very well with our strategy to grow our international service business.But that's not all, we had more good news after the quarter's end. Early this month, we secured work for Phase 2 of Johan Sverdrup. It evolves modifications of the riser platform and field center. The contract is worth NOK 3.4 billion and will be split equally between Aker Solutions and Kvaerner, our partner in the work. We are delighted to have secured more work at this project, where we have worked closely with Statoil since the earliest phase to reduce costs and boost efficiency.In fact, the earlier we get involved in a field development, the greater the potential to optimize overall value. I don't get tired of repeating that phase. Our customers see the benefit of this. This is evidenced in a search in their mind for early phase capabilities, from feasibility and concept studies to front-end engineering and design. Last quarter, we won 38 front-end orders. That's the highest number ever in a single quarter and compares with a record of 124 awards for all of last year. 1/3 of the orders are for projects outside Norway, and 8 are for orders where we had our alliance partners with us.Early involvement put us in a strong position to secure more work at the development. In the first quarter, 2 of our concept studies led to fill FEEDs, and 7 of our FEEDs led to fully fledged projects. This includes work at Johan Sverdrup development, which I would describe in more detail in the next slide. Johan Sverdrup is a giant project we have been working on since the very beginning and we know it well. So far, we have more than NOK 8 billion of work at this North Sea project. We have worked closely with our customer Statoil from day 1 to help reduce the cost of this field by about 50%. We began with early feasibility and concept study. Then we moved to FEED work and finally on to the full project, or Phase 1 and now also Phase 2. Through this time, we helped the Johan Sverdrup partnership put together an economically attractive project. And the breakeven cost is now below $20 a barrel. So as you can see, our front-end capabilities are a clear advantage in today's competitive landscape, both for our customers and for our ability to win more work.Everything we are doing now as an industry is being shaped by power -- by the power and potential of digitalization. We took key steps in the first quarter to further develop our capabilities in this area. In February, we agreed on a long-term collaboration with software company Cognite. We use Cognite's industrial data platform to collect and analyze large volumes of data from offshore energy installations. Based on this, we will provide solutions that enable customers to make informed decisions about their energy assets at any stage of its lifetime. This will reduce costs, low risks and improve performance for our clients.But there is more. We also recently formed Software House, which is developing software products to drive efficiencies to the life of our energy assets. Software House incorporates the PUSH program, additional initiative to improve efficiency in field developments and in maintenance of projects. Our key objective is to accelerate the development of field concepts, to reduce costs and optimize solutions for the total life of field. One of the first applications to come out of PUSH is engineering assistance. Our [indiscernible] nickname for it is Google for Engineers. I find it very simple. The application is built on a Google technology and provides easy access to data and augmentation from projects that we have delivered over the years. This makes easier to find and we use the good solutions we have previously utilized. It also promotes faster learning and improves efficiency in projects. We also have other digital initiatives we are working on through PUSH, which we will review in due time. So as you can see, we are not just talking about digitization, it's very common these days, we are already actively using digital tools to enhance our existing capabilities.Now let's a look ahead. While the outlook for oil services remain uncertain, there are increasing signs of recovery. The proven measures across the industry are continuing to have an effect, oil prices are higher and we see more projects being sanctioned or about to be sanctioned. Going forward, we expect to increase activity as operators need to make up for 3 long years of significant under-investment in global E&P spending. There is a steady tendering in our main markets and we are currently bidding for contracts totaling about NOK 50 billion. About 2/3 of this is in the subsea area, in respect to some key projects to be sanctioned this year.We see particular potential in Norway, Brazil, Asia-Pacific and Africa, where we are well placed to take advantage of an upturn. Long term, we are upbeat. Demand for energy, in whatever form, will increase globally. And these were our push for sustainable energy solutions will truly start paying off.So as a round-off of my part of today's presentation let me quickly recap the main points. We started the year with strong order intake, continued solid execution and cost efficiency improvements. These are supporting margins amid increasing signs of a market recovery. We are well positioned in major markets globally and actively pursuing new opportunities as we build on our capabilities in delivering sustainable energy solutions. Thank you for listening. And Svein will go through the numbers in more detail now. Svein?

[Svein Oskar Stoknes, Chief Financial Officer]

Thank you, Luis, and good morning. So I will know take you through the key financial highlights of the first quarter, our divisional performance and run through our financial guidance, before we move on to Q&A. And as always, all numbers mentioned are in the Norwegian kroner. So as usual, let's start with the income statement.Overall operating revenue for the first quarter was NOK 5.5 billion, up 6% year-on-year. In our projects reporting segment, higher activity and field design was partly offset by lower subsea revenue, as newly awarded work was in the early phases of execution.Our services segment was up 8% year-on-year, primarily driven by PAS or production assets services. As a reminder, PAS is comprised of the services component of the old MMO or maintenance, modifications and operations business segment with the addition of C.S.E., the Brazilian company we acquired at the end of 2016.Our reported first quarter EBITDA was NOK 425 million. This included some special items, primarily a gain of NOK 50 million from a real estate transaction. This is part of the process to optimize our setup and improve efficiency and was booked outside our 2 operating segments in Other. Special items also included a small gain related to non-qualifying hedges. A cost of NOK 7 million related to restructuring and a few other minor items. For your reference, we have as usual, set out a table in the appendix that further specifies the special items in the quarter. Excluding special items, EBITDA was NOK 384 million, an increase from NOK 363 million a year earlier. This was equal to an underlying margin of 7.1%, up from 7% in the same period last year. We continued to deliver sequential stable underlying margins as a result of continued strong execution and good momentum in our continuous efficiency improvement program.First quarter depreciation was mostly unchanged year-on-year at NOK 200 million. Underlying depreciation was NOK 185 million, in line with our guidance. Looking ahead, we continue to expect underlying depreciation to be around NOK 750 million to NOK 800 million per year.Our reported first quarter EBIT or operating profit, increased year-on-year to NOK 226 million from NOK 150 million. Excluding special items, EBIT was NOK 199 million and the margin was 3.7% versus 3% last year. Excluding a small unrealized hedging gain, net financial items were minus NOK 70 million in the quarter, including a minor net negative impact from currency effects and other financial items. We continue to see net financial items on an annual basis in the range of NOK 60 million to NOK 70 million per quarter. This excludes the effect of currency and non-qualifying hedges. Our tax charge was equivalent to a rate of 34% in the quarter. Looking ahead, we continue to expect average P&L tax rates to be in the low to mid-30% range.We ended the quarter with unadjusted net income of NOK 105 million, or earnings per share of NOK 0.38. Excluding special items, the earnings per share where NOK 0.31.Now moving to our balance sheet and cash flow performance. Our net current operating assets or working capital, ended the first quarter very strong at minus NOK 1.4 billion. This was an improvement from minus NOK 844 million at the end of last quarter. This came as a result of continued solid project execution, ongoing initiatives, optimized cash flows and claiming of some milestone payments. Working capital is likely to fluctuate around large project work, and we now expect the level to gradually trend toward 2% to 4% of group revenue over the next 9 to 12 months from previously indicated 5% to 7%, again, as a result of the strong momentum on our initiatives to minimize our working capital needs. We had net interest bearing items, or net debt of NOK 475 million at the end of the quarter, down from NOK 970 million at the year-end, reflecting good capital discipline and strong cash collection.Our net debt-to-EBITDA ended the quarter at a solid at 0.4x. We now expect to be in line with our targeted level of net debt-to-EBITDA through 2018, as compared to our previous guidance to exceed our conservative target level of 1x. As previously announced, we successfully issued a NOK 1.5 billion senior NOK-denominated bond in the quarter. Where have also concluded with the syndicate of 12 banks to replace the old revolving credit facility with a new 5-year NOK 5 billion multi-currency revolving credit facility, still at very competitive terms. It has the same amount, tenure and leverage covenants as the previous revolver at 3.5x net debt to EBITDA.We had a very solid financial position at the end of the quarter with a total liquidity buffer at a healthy NOK 7.6 billion. This includes our new revolving credit facility. Our group capital employed was NOK 7.3 billion at the end of the quarter. Our solid financial position continues to give us flexibility and good financial headroom going forward.Our cash flow from operations in the first quarter was NOK 533 million, reflecting good progress on our backlog and strong cash collection. Our investing cash flows totaled a net positive NOK 25 million in the quarter, due to the previously mentioned real estate transaction. And we continue to see overall CapEx and R&D at roughly 2% of revenue going forward, with flexibility. Cash flow from financing was positive [ NOK 205 million ] in the quarter, reflecting the change in our external borrowings, where proceeds from the bond issuance was used to settle utilization of the revolving credit facility.Now on to projects, where first quarter revenue was up 4% year-on-year. Increased activity in field design more than offset lower year-on-year subsea revenue. This resulted in an underlying projects EBITDA margin of 7.6% in the quarter versus 6.6% last year. The EBIT margin excluding special items was 4.7%, an increase from 3.2% a year earlier. We continued to realize significant benefits from our improvement programs in our projects portfolio. Coupled with our solid operational performance and high filed design activity, this helped offset the impact of lower subsea volumes during the quarter. Order intake in projects was very strong in the first quarter in both sub-segments and the first quarter book-to-bill ended at 1.5x versus 1x a year earlier. The backlog in projects increased to a healthy NOK 27 billion at the end of the quarter. This is equal to about 18 months of projects revenue.Now let's take a look at the key figures for subsea and field design within this reporting segments. Revenue from subsea projects was down 10% year-on-year, in line with last year's average quarterly volume. This reflected startup and early phase work on some of the newly awarded contracts and some projects nearing completion. Revenue from field design projects was up 21% year-on-year, mainly driven by North Sea modification and hookup jobs as well as the effect of the acquisition of Reinertsen in Norway in the second quarter of last year.In terms of order intake, both subsea projects and field design delivered a very strong 1.5x book-to-bill in the first quarter. Despite the challenging markets, tendering activity is still healthy and we are currently tendering for around NOK 40 billion of work overall in projects, with the majority in subsea.Our services revenue increased 8% year-on-year. This was driven by solid growth in our production asset services sub-segment in Canada. Brazil and Asia Pacific. As of the first quarter, subsea life cycle services accounted for about 50% of services revenues, down from about 60% in the same period last year. Underlying EBITDA was NOK 135 million with a margin of 11.7%, down from an unusually high 14.2% in the same quarter last year. EBIT was NOK 93 million with a margin of 8%, down from 10.6% a year ago. The margins are lower year-on-year, primarily reflecting the change in revenue mix as well as seasonal effects in subsea life cycle services. In addition, the installation and commissioning activity in SLS was unusually high in the same period last year.First quarter order intake increased year-on-year and totaled a solid NOK 2.2 billion for services overall, resulting in a first quarter book-to-bill of 1.9x. This was mainly related to the award of an NOK 800 million 4-year maintenance and modifications contract for Petrobras in Brazil as well as some new orders and growth on existing contracts in Canada and Brunei. I would like to remind you that a part of services order intake is short cycled or book and turn in nature. Despite the tough market, tendering activity is good. We are currently tendering for around NOK 10 billion of work globally.Now over to the order intake and backlog performance for the group as a whole. Overall, first quarter order intake was strong at NOK 8.6 billion with a good combination of greenfield, brownfield, services and growth on existing contracts and frame agreements. This is equivalent to a book-to-bill of 1.6x and the second consecutive quarter of increased backlog, which is up almost NOK 7 billion from the same quarter last year.Our backlog totaled NOK 37.6 billion at the end of the first quarter. This is equivalent to around 1.7x our 2017 revenue. With the recent strong order intake, visibility has improved and as mentioned earlier, tendering activity is still good, with several key projects likely to be sanctioned over the next 6 to 12 months. We are currently engaged in tenders with an estimated sales value of around NOK 50 billion. As a reminder, our backlog does not include a good part of our services business, or potential growth or options on existing contracts.And finally over to our updated guidance. As Luis mentioned, we saw some signs of a pickup in activity levels. On the back of our strong recent order intake and continued good momentum securing new work, we see our overall top line up close to 10% in 2018 versus a year earlier. We see revenue growth in both projects and services and across sub segments. While some regions would benefit from improved order intake, we also see signs of an uptick in activity levels in these regions. And we will continue to leverage our front-end capabilities to capture opportunities and engage with our customers at an early stage. At this point, we expect our underlying EBITDA margin for the group overall to remain around current levels, even as new orders enter our backlog. This will be supported by continued solid execution a relentless focus on continuous improvements.As we see activity levels picking up, it will be important now to harvest scale effects from a very fit and streamlined organization and asset base. We have a healthy backlog, improved visibility and a solid financial position. This gives us increased flexibility and financial headroom to position Aker Solutions to fully take advantage of the recovery.So to sum up, we ended the first quarter of 2018 by continuing to deliver strong project execution with good underlying financial performance and by securing a strong order intake that has considerably improved our visibility moving forward.Thank you. That was the end of our presentation here today and we will now move on to questions.

[Synnøve Gjønnes, Analyst]

As I've said, we have time for some questions now. We have a webcast audience here today, but we'll start with questions in this room. And for the sake of the webcast audience, I would ask that you please introduce yourself by name and where you work before we then move onto the questions.

[Chr. Frederik H. Lunde]

Frederik Lunde, Carnegie. First of all, congratulations on having coming out of the downturn in very good shape. My question would be in terms of margin expansion, could that have to be a case for 2019 and will it be due to operating leverage or price increases?

[Svein Oskar Stoknes, Chief Financial Officer]

I can start just saying that thank you Frederik for the words and that's a credit to the Aker Solutions team. Fantastic performance and solid execution through the downturn. So let's continue working hard going forward. So yes, I think in terms of margin expansion, of course, we have a huge leverage in the company, because we have invested like some of our -- with the contractors before the downturn. And also during the downturn, we protected the execution capacity, because we knew that eventually we are going to need this good people. So as I said, we could have been, I guess, cutting work force further. We didn't do it, because we want to protect this people that we invest so much on them. So I think we have some positive opportunities in space and even though the market has picked up in Norway, which is our local market and that's where most of the orders are coming from in the 4Q and [ 1Q ] -- first quarter this year, but there are some signs that there are opportunities outside and that's moving a bit slow in some markets, so it is a very mixed message. But yes, we have capacity and we hope that by getting more volume, then we are going to improve our results. Any specifics, Svein, on numbers?

[Svein Oskar Stoknes, Chief Financial Officer]

We don't plan on any improved pricing power. But of course we hope to be able to convert more of our [ price ] improvements on to our own bottom line. But as Luis alluded to here, we see a company that is extremely fit and streamlined that should be capable of lifting a considerably higher top line than we're doing today, based on the same assets manufacturing base, and then much more matured engineering workforce that we have matured and developed and been able to retain very well through this downturn. So it bodes well for scale effects, harvesting, moving forward.

[Chr. Frederik H. Lunde]

One more question. I understand you're working with Aker on the [indiscernible] project in Ghana. Do you vision any sort of local content [ lessons ] there going forward? And also when will this translate to backlog for you? Would that be from FID?

[Svein Oskar Stoknes, Chief Financial Officer]

It's a limited work [ you can say ] about the project, it was very early days, but of course, our -- not only for Aker Energy, but for any other client, our front-end capabilities are critical to start -- to make that project curve as efficient and profitable as possible. So we are on that phase right now and the we're probably likely to work with existing partners from here. So I think it's too early to say, they just got the field -- bought the field, they are just still finalizing the acquisition from Hess. But I would expect this project to move very quickly, because that's one of the strategy of the Aker Group, is to be efficient and bring oil fast, but I don't expect any backlog for this year, or probably next year.

[Haakon Amundsen, Lead Analyst]

Haakon Amundsen from ABG. Two questions from me. First of all, another question on '19. I mean your '18 is of course boosted by your Norwegian exposure, and I am wondering if -- on kind of a general basis, is there enough momentum in the international market and do you have good enough positions in the international markets to grow in '19 or is it too early to say?

[Svein Oskar Stoknes, Chief Financial Officer]

Okay, I think it's too early to say, just putting that to aside. It's absolute early to say and that we know that clients are really -- they focus on capital too, it's not like people are rushing to spend, they want to spend their money wisely. But as I said, it's been 3 years of under-investment. If you don't do something about it, the producer or the client has declined in several areas and we may have a supply problem, which now actually reflect on the prices. I think there may be some excess and I think the good assets will be developed. That's what I'm saying since the beginning. I think we are competing against shale and all the source of energy, but what we have done in offshore, is particularly in Aker Solutions has been extremely good. So I think clients, and you can see that reflect in the front end, and 1/3 of those are actually outside, if you recap our front-end efforts or our capabilities were pretty much in Norway. Now we start to expand, and we are doing a lot of studies for clients outside of Norway. And I think -- quite clearly, I think Norway has been a benchmark for a lot of industries. Just last month in [indiscernible] there were specialists in the Norwegian sector, in the North Sea to see how we have managed to cut those costs so quickly. Of course, as we say, these are -- the low hanging fruits are easy to cut, but we have to continue that trend. So it is a mixed -- back to your question, a mixed message. I see that in terms of our position, I think we're very well positioned in some of the critical areas. And we can mention Brazil as an example, where we have today in Brazil over 3,000 people, a larger Brazilian workforce, very few expats and we acquired a company there, we are bringing capabilities that we have from here to that company. So you can see that bringing a lot of interest in and the acreage is moving. Of course, every market has particularity and it's probably early days for some of the areas in Brazil, particularly. We are positioned in Asia. We see our position in some of the countries in Africa quite good as well. So I think we are confident that we can take our share and continue our international expansion.

[Haakon Amundsen, Lead Analyst]

And then second one on the small -- you have a good contract intake this quarter of unannounced or smaller contracts. Is there a step change in the kind of -- in these type of orders, services you can turn or was this an exceptionally strong quarter?

[Svein Oskar Stoknes, Chief Financial Officer]

I hope that not to be the exception to our orders, but I think it varies. That's not linear. And what we see actually is what you see in the whole markets that there's a lot of smaller projects that doesn't meet the threshold for announcement; tiebacks, brownfields. So that -- I think I would expect there to be a trend to have -- but we always had and announced, there is also growth on projects, there's variation in orders, but it's a lot of one-offs -- [ one-two-offs ] in subsea that they will make the threshold for announcement. But that's what [indiscernible] people are trying to produce more from the existing assets. So brownfield is definitely back comparing to the greenfields. When I am talking about outside of Norway being a bit slower, it is on the greenfields, because people were -- I think they are too concerned about the long-term, because if you start a greenfield now, it's going to take -- still even though we have cut the lead times on projects a lot by doing front-end and all the stuff I said before, it will still take a couple of years to get the oil and people are still uncertain about the stability of the oil price. But yes, so I think that should be -- probably back to your question, probably more normal to have that, in especially [ service time ].

[Svein Oskar Stoknes, Chief Financial Officer]

There is also on element in addition to that related to improved visibility on our existing frame agreements. So we see and are able to discuss what the activity levels are going to be over the next 12 to 24 months, and hence backlog is reflecting that.

[Svein Oskar Stoknes, Chief Financial Officer]

I think one important point, as well, that we keep trying to educate people. Sometimes when -- especially in the brownfield, usually you are awarded a front-end study with an option for an EPC and what happens that we have -- when you announce, you announce the front-end and the EPC. Of course, you don't announce again on, I guess, the EPC, and that's becoming more and more common as we show in the presentation.

[Synnøve Gjønnes, Analyst]

Any further questions in here? Right behind you.

[Unknown Analyst]

[indiscernible] SpareBank 1 Markets. Just on the backlog. Can you say anything about how large share of the backlog comprises orders awarded before the downturn started and carries high margins into -- over the next quarters?

[Svein Oskar Stoknes, Chief Financial Officer]

I think you can you easily do that math yourself. We have now consistently quarter-by-quarter provided a phasing of our existing backlog. So I think just by doing some simple math there, you can do to the phasing.

[Svein Oskar Stoknes, Chief Financial Officer]

Well. actually in the presentations you see that. From the top of my mind I don't think I can answer that.

[Svein Oskar Stoknes, Chief Financial Officer]

So we have provided a pretty detailed overview in our presentation of the phasing of our backlog, both as it relates to project side and services side, subsea-wise, field design wise and it goes back now some quarters, so you can find the information there.

[Unknown Analyst]

And on Brazil, you have been -- mentioned as front-runner for the [ Maero ] SPS contract for some time. Can you say anything about the progress on that project and also if you can, are there contract opportunities you see, specifically in Brazil?

[Svein Oskar Stoknes, Chief Financial Officer]

Yes. We never comment on specific projects. And that has been rumors in the industry. But I would say that we are of course very well positioned in Brazil. We just mentioned today, already half of the trees in Brazil, or even more than half came from our plant in Brazil. So we're very well positioned for the pre-salt. We see now -- is there a new opportunity to see, [ [ Maero 2 ] just about to come out. What's affected I think the -- firstly [ the Maero ] formally called Libra, was the fact that there was a lot of discussion about lower content, not on the subsea side, because we provide a quite large local content, actually over 70 -- of around 70% actually in Brazil. So that's not an issue. It was more of an issue of FPSO, and now the discussion of local content and the waiver pushed the project to the right a little bit. But now we know the FPSO is placed, so we expect to see a decision quite quickly. I just cannot comment [indiscernible] I don't do that, hopefully.

[Synnøve Gjønnes, Analyst]

Any further questions? Gentlemen at the back there.

[Unknown Analyst]

[indiscernible] I have a question, perhaps a broader question about the sector and what your peers are doing now in terms of consolidation. We've just seen a aggressive bid from Subsea 7 to buy McDermott. And if I remember correctly, [ Mr. Rakaya ] was talking about potential for changing the ownership of his companies, perhaps divesting something or combining with something. Where are you on this now, what are your plans, how do you see the moves?

[Svein Oskar Stoknes, Chief Financial Officer]

First of all, I think the question has to be addressed for [ Mr. Rakaya ] if that's the case, because I don't comment on his. All I can say is that myself and the project -- the management team of this company, we are focused on making this company better every day and win on a standalone. And I think we have done the people job so far, they almost had me around for quite some time. So I think any downturn brings consolidation and that's no different now. I'd like to say that I see our strengths, a company who can be more flexible and can be more close to the clients compared to some of those giants, and as I keep repeating, it is very difficult to be good at everything. So we believe that the client has a choice to select the best, and our strategy so far has been to work through alliances and to work with partners, which are the best in the areas. So we're not -- as I said, not focused on that, we are focused on deliver execution. And of course always watching the market and see if that's going to affect us, if the supply rules change. But as I said, no much to say apart from just continuous equity.

[Unknown Analyst]

If I may, just a follow-up question. 68% of your backlog comes from Norway now and you've won some great contracts from Statoil, Johan Sverdrup, Castberg and so on. But after Johan Castberg, there are no large projects coming, or we don't see them as yet. So it clearly points to your problem, you are so much exposed to Norwegian Continental Shelf, and perhaps my thinking and the question about consolidation was that perhaps you need to partner with somebody to expand your business internationally. So what are your efforts on that? Where do you see the orders coming, your business coming in -- after [ 2022 ]?

[Svein Oskar Stoknes, Chief Financial Officer]

So just first of all, we are very clear that our strong position in North Sea is not a problem, as you referred to. Actually it's a solution in some cases. If you look back to what happened for the last couple of years, actually we came from -- we always had [ 50-50 ] backlog when we started to cycle and then actually through the internationalization at one point in time, because this market stopped before the others in a way, we actually had 70% outside of Norway almost. And then, of course, now the Norwegian market came back faster and stronger than the other markets. Also stopped earlier. So basically, for us it's good to have that balance. I am convinced, we are convinced that we have capabilities in this company and that can bring us outside Norway and we actually proven that in working in places like even brownfield, which should be a completely Norwegian business until 5 years ago. We have operations now 50-50 in Norway. We have large operations in Brunei, we have operations in Canada. And then now we have a new company in Brazil. So we are moving forward and I think we have -- with our technology and our capabilities to be in this, what we call the field integrator are going to [indiscernible] I don't think there's any company has so much knowledge than Aker Solutions, when it comes to the both front-end to brownfield. And I think I mentioned or commented about digitalization as well. I think we are a unique company and the world needs unique companies. So we're going to continue that. We have more international clients now, key clients than we had when I started as CEO in 2014. So I'm very proud [indiscernible] what the team has achieved and very confident as well.

[Svein Oskar Stoknes, Chief Financial Officer]

Keep in mind also that we are in the midst of -- today, still to execute and deliver on the world's largest subsea project in most of Africa, we just finished delivering another major project in the Congo for Total. As Luis mentioned earlier, we have that fantastic position in the Brazilian market, which we expect to be a market, they are picking up activity-wise very soon. We're executing on the largest project ongoing on the U.K. side of North Sea as we speak. So I mean -- and I think there is nothing wrong with our competitive position outside of the North Sea.

[Synnøve Gjønnes, Analyst]

Thank you. Are there any further questions here? If not, then we'll move on to the webcast. The first question is from Lillian Starke at Morgan Stanley.

[Lillian Starke, Research Associate]

I've 2 questions. My first is to what extent do you think the benefits of your digital strategy will be an enabler to win work versus a strategy to reduce costs? And my second question is if you could provide any color on when could we expect dividend payments, or what could be the catalyst for this to take place?

[Svein Oskar Stoknes, Chief Financial Officer]

I'll start with the first part with some of the digitalization. I think that is a combination, and again, I'd like to qualify that digitalization is such a large spectrum and there's people investing on platforms, going to -- we decided to invest in 2 fronts, one is our ability to reduce our own costs. to have the connected employee, to make sure that we are reducing the time and the cost for us and for our clients. And the other part is to make our offer more digitalized, and I mentioned one example today, which cut -- we've cut the cost for the clients a lot. So basically, I think that will make us more competitive. So I think, it is both. I think we can leverage our revenues by being unique. I think we have the possibility to be the digital contractor on this, because the amount of data we have in this company, we have not started digitization now. We've been working actually under different name even before PUSH, called the knowledge-based system. We've been working on that for probably 4 years already. So now the projects are coming up. So I think it's a combination and it is very hard to split, because we don't know how is it going to look like, but I see that of course a potential for our revenues is bigger, because you can -- so much you can. But inefficiencies in this industry and we are a slow starter, is quite -- it was actually astonishing. And now we are -- again, when I talk about partnerships, I mentioned about partnerships on the oil and gas sector, we have partnerships also in the digitalization arena. We have to do that. This industry is famous for not partnering and not learning from all the industries and now we are doing that actually intensively. On the second part on dividends, Svein you want to try to answer that?

[Svein Oskar Stoknes, Chief Financial Officer]

Yes, so we have now over the last 2 years, used the opportunity to strengthen our balance sheet and the board on the Annual General Meeting has approval or decided not to pay a dividend. The plan would be to return to paying dividends as of next year. And as I said, our guidance remains 30% to 50% of net profit, either through cash or through share buybacks. It's certainly a board decision, as I said, but that's -- I think we could have even paid dividend this year, but we thought it was more prudent not to. So the board will think about that shortly.

[Synnøve Gjønnes, Analyst]

The next question is from Lars Semb Maalen-Johansen at Global Assets.

[Lars Semb Maalen-Johansen]

Unlike other firms in your industry, you are experiencing increased margins on your projects. Is this an underlying trend or a one-off this quarter?

[Svein Oskar Stoknes, Chief Financial Officer]

Well, I don't think -- we show -- I would say that we are showing stability and like quite a lot of companies in our industry, we are fighting very hard for the margins, because the market is very competitive, and prices are long way from they were in 2014. Having said that, also the whole industry understood that -- I think as I said before, I think we're the only industry that cost went up, every other industry cost came down. So we're competing against a trend. So now I think we are in the trend. Of course we had to do that very quickly. There was probably a very hard diet, everybody had to stop eating very quickly. So if I think now, we expect to increase our margins, as I said, but not go back to the price inflation, I think the industry can afford that. If you do that we're going to fail again, like we failed in the past. I think we have to look for efficiencies and it is not about cutting -- as I said, it is the beginning. Our margins are not where they are. Of course, we are going to make projects viable. We have to look into the efficiency, how we select, how we stop reinventing the wheel, and how we actually use -- as I said, use external solutions, and how we cut out the inefficiencies that we had before and collaborate more. I gave an example, we've been selected by IOGP [indiscernible] a couple of quarters ago, to design the new standard for the oil industry. Very proud to be selected. This shows our knowledge, because these are all companies who want to do that. And the IOGP, which has 80% of global production of the world, select us, they believed we can drive the digitalization efforts and they're moving now into next phases of the digitalization and we hope to be involved. So that's what we need to do and that's going to increase the margin not only for ourselves, but for the whole industry.

[Svein Oskar Stoknes, Chief Financial Officer]

The gradual improvements we have seen in our project portfolio has been the result of a consistent approach to driving through efficiency and improvements in our execution and that's been at the top of our agenda since we demerged the company back in 2014. So it's absolutely not a one-off, It's been a consistent trend and that's been the only way we have been able to maintain margins stable, underlying, despite our top line coming down by 30%. Of course, we see still considerable opportunities to continue on this moving forward. Hence, we are still guiding that we will see stable margins, around current levels, despite phasing in new work.

[Synnøve Gjønnes, Analyst]

Right. The next question is from David Farrell at Macquarie.

[David Richard Edward Farrell, Oil and Gas Research Analyst]

Are you seeing any signs that the higher oil price is causing your clients to try and accelerate activity or projects?

[Svein Oskar Stoknes, Chief Financial Officer]

Yes, I think historically the oil price is always a catalyst for people doing more projects. So -- and the front end shows that the clients are starting to get, I will say, more bullish and they get more comfortable. So yes, I would say that the most stable the oil prices are, the more people are likely to invest. And I go back to the fact that not much has happened for almost 3 years. So you can see that there's a large backlog of projects to be executed there. So it's likely people will start to look into the portfolio and start to execute the most profitable ones. So yes, the oil price actually has an effect.,

[Synnøve Gjønnes, Analyst]

Question from Amy Wong at UBS.

[Hin Kin Wong, Executive Director and Analyst]

Congratulations on a strong start to new orders. On the projects you are currently tendering on, how intensive is the pricing pressure? Are you building in any cost inflation?

[Svein Oskar Stoknes, Chief Financial Officer]

Thanks, Amy, for the kind words. Well, the market is competitive, especially when you look, we still -- like in the subsea arena, for example, still expectation this year is to have over 200 trees, we used to have 400, so it's quite a lot of capacity, a lot of plants have been closed, capacity was taken from the market. But we still have overcapacity in some areas. So I think we see a very competitive market and that's going to remain with us. So that's why we don't worry so much about building up or boosting our prices, because I think we have to make sure that we are competitive. So yes, I would to expect, as I said before, I think we expect more to gain margins through competitiveness and also volume and operational leverage, then by price competition, by price increase. But everybody likes a better price. That's, I guess, not only for us, but for the [ whole ] industry, but not -- it doesn't come always, you can wait for that either.

[Synnøve Gjønnes, Analyst]

Amy has another question, this time on working capital. Good job on the improvement in the working capital. Can you describe some of the processes you have implemented to deliver what looks like a stepped reduction to your working capital investments?

[Svein Oskar Stoknes, Chief Financial Officer]

It has remained unusually low, the NOK 1.4 billion triggered somewhat as I also said, by some milestone payments at the end of the quarter. So underlying, it has remained stable and it's due to a series of improvement initiatives. For example, on the services side, where we have more of a book and turn type activity and where we by nature of the services business, carry a lot working capital through inventory and just the nature of running a services business. But the most important [ insurance ] payment, to keep the working capital level as low as they are today is flawless execution. As long as we keep on delivering, there's no excuse for the clients not to pay on time. So we should just keep it at that.

[Synnøve Gjønnes, Analyst]

Okay. And then it's the final question. This is in essence a follow-up from Global Asset's first question. You achieved good margins in 1Q versus some of your competitors. Do you see a margin increase going forward or margin pressure?

[Svein Oskar Stoknes, Chief Financial Officer]

So I think we said we don't see any -- we don't plan for any improved pricing power moving forward. There are 2 factors that will drive our margins in the right direction moving forward, hence the continuous focus on our operational improvement and efficiency programs and to an increasing degree, start converting that to our own bottom line, and then it's through scale effects, effectively just picking up. As I said, we don't see that we need any further assets and we have a very scalable and highly skilled, mature workforce at the moment that should be able to lift higher activity levels moving forward.

[Synnøve Gjønnes, Analyst]

Okay, thank you very much for joining us here today. We are ready to warp up.